Venture Corporation | Hold (downgrade)
Target price: $17.83
July 13 close: $16.41
Broker: CGS-CIMB, July 11
Venture is still targeting growth in FY2018. The traditionally stronger second-half seasonality effect is expected to hold this year.
The group has yet to see any changes as a result of the trade war. It is in constant contact with its customers to manage the situation.
Despite the threat from higher costs due to the tariff impact as well as the ongoing component shortage, we leave our margin assumptions intact as we assume that Venture will continue to manage costs well (as evident in its first-quarter results).
An upside key risk to our call is the resolution of US-China trade tensions, which could see Venture revert to a higher revenue growth rate over our forecast period.
Downside risks could come from product launch delays by customers.
Thai Beverage | Buy (maintained)
Target price: $1.02
July 13 close: 72 cents
Broker: RHB Research, July 12
We remain positive on ThaiBev's medium-term prospects despite near-term softening of demand.
With consumer confidence at a 40-month high, we expect the premium in alcohol consumption to be realised in two to three years.
This is in conjunction with efforts to introduce higher-value products such as Ruang Khao Silver, Blend 285 Signature and Federbrau. New products like Kulov Max Seven and Star Cooler are also expected to bring higher margins and reach out to a wider consumer base.
We trimmed our earnings by 3-4 per cent because of the lower-than-expected beer sales in May. This yields a new target price.
However, we are positive on medium-term prospects on strong economic growth and potential margin expansion from new products.
Near-term, higher rural income driven by campaigns for the upcoming elections would be a positive catalyst for alcohol consumption. Key risks include slower-than-expected recovery in consumption and intensifying competition.
Golden Agri-Resources | Hold (maintain)
Fair value: 30 cents
July 13 close: 28 cents
Broker: OCBC Investment Research, July 11
Crude palm oil (CPO) prices have continued to trend lower in the second quarter of this year, and are down about 6 per cent so far this quarter.
As for Golden Agri-Resources (GAR), its share price is down about 16 per cent from end-March.
GAR's sales to customers within Indonesia and China are denominated in their local currencies, while export sales for most of the group's products and cost of certain key purchases are quoted in US dollars.
Purchases and operating expenses in Indonesia and China are mainly denominated in their local currencies.
This should be accretive operationally to earnings, but the group is also exposed to currency translation risk as financials are reported in US dollars.
OCBC Treasury Research & Strategy continues to stay bearish over palm oil prices into the second half of this year, with supplies likely to go higher into the third quarter amid lacklustre demand.
Over the long term, however, GAR believes that CPO prices will be supported by growing food demand as well as from increasing biodiesel usage.
In the nearer term, with weaker CPO prices and a dimmer outlook on earnings, we lowered our valuation to 17x FY19F earnings and our fair value estimate for GAR drops from 34 cents to 30 cents.